What Europe Really Needs

This policy expert says a four-part solution to the crisis is in order.

Pointing to causes of the euro zone crisis is arguably easier than shooting fish in a barrel. Nicolas Veron, a senior fellow at Bruegel, the Brussels based think tank, is busy looking for solutions - and he has identified four.

The thing is, they have to coexist to be successful.

In a statement before the Subcommittee on European Affairs of the Senate Committee on Foreign Relations earlier this month, Veron argued that "the core of the current crisis, what makes it unique, is Europe’s insufficient ability to make authoritative policy and political decisions for the region as a whole. To correct this weakness, Europe must build a fourfold union that would allow such executive decisions to be made. The four components are: (1) a banking union, (2) a fiscal union, (3) a competitiveness union, and (4) a political union, i.e. institutional reform to embed democratic accountability more solidly in decision-making."

Simple, right? There's more: "Progress must be made in parallel on each of the four components," he says.

Veron adds that Europe is suffering from what he calls an "executive deficit," an absence of people making the key decisions that need to be made to head of a financial crisis. To eliminate that deficit, he says, "an authoritative European-level executive framework must oversee banking, fiscal and structural policies." And there needs to be deposit insurance "which itself requires a credible supranational fiscal backstop."

Rather than trying to resolve long-term issues, European leaders need to focus on pragmatic solutions to the pressing issues at hand, Veron says. "Thus, leaders should establish a temporary euro area bank resolution authority, as none of the existing institutions has the skills and mandate that would allow it to perform the thankless task of identifying and restructuring failing financial institutions." There will have to be temporary guarantees to backstop these ailing institutions, he says.

Longer term, Veron says, "the euro area needs not only a single supervisory mechanism for banks but also a regionally based deposit insurance system and a central resolution authority for failing banks."

This is strong medicine - and plans like this have met opposition in the past - but Veron argues that a breakup of the euro zone would be worse.

"It is not too late for Europeans to take action to ensure the survival, sustainability and success of monetary and economic union," he says.